Investment Column: M&B's trencherman focus earns its crust
Aquarius Platinum; London Stock Exchange
Friday 28 January 2011
Our view: Hold
Share price: 359.26p (+14.2p)
Investors in Mitchells & Butlers, the pub-and-restaurant group, raised a glass to its results yesterday, which were ahead of City expectations, largely thanks to strong food sales.
Despite the December cold snap, the owner of the All-Bar-One chain toasted a rise in underlying sales of 2.5 per cent for the nine weeks to 22 January, comfortably better than consensus forecasts of 1 per cent growth.
While underlying drink sales inched up by only 0.5 per cent over the period, like-for-like food sales jumped by 5.5 per cent. The difference between M&B's food and drink sales further vindicates the company's long-term strategy to expand margins by focusing on catering and its six core brands, including Harvester, Toby Carvery and Vintage Inns.
The strategy of increasing its share of the UK's £70bn eating-out market was further highlighted by the company's acquisition of 22 ha ha bar & grill sites in October.
M&B is also taking strides to underpin this momentum by stepping up capital investment. This financial year the group is converting 70 of its primarily drink-focused pubs to food-led operations, compared with 54 last year. More significantly, the group is to unveil 50 new-build outlets, in contrast with just one in 2009-10, and these will be largely targeted at retail and leisure parks with high footfall.
However, potential investors should take note of less appetising developments at M&B. For instance, although it is considering reintroducing a dividend, there is still no certainty it will come back this year. And the group needs to find another chairman after it revealed that John Lovering will step down once a replacement is found.
With the shares close to a 12-month high and trading on 12.3 times forecast full-year earnings, they are probably fairly valued. But the company is going in the right direction, so hold.
Our view: Avoid
Share price: 359p (+7.8p)
It's tough for Aquarius Platinum. The world's fourth largest platinum producer has done nothing itself to warrant an "avoid" rating on the stock. Quite the reverse, in fact.
According to yesterday's second-quarter production results, Aquarius is going great guns. Production of 128,000 PGM ounces in the quarter to the end of December was a 3 per cent rise compared with the previous quarter and a 14 per cent increase on the previous year.
With average PGM dollar prices up by 9 per cent, Stuart Murray, the chief executive, was justifiably upbeat. He said Aquarius had had a very good quarter from an operating perspective, further outperforming a creditable first quarter and placing the business on a strong footing before the traditionally more challenging third and fourth-quarter periods.
The company is also the top tip for the South African platinum sector from Evolution Securities' analyst Louise Collinge, and is "well-placed to participate" in the consolidation of the industry expected this year.
But, as Ms Collinge rightly notes, the car industry, an big user of platinum, is facing tricky times. Given the market's importance, it's too early to take a punt on platinum. So avoid.
London Stock Exchange
Our view: Hold
Share price: 873p (+5.5p)
A positive update from the London Stock Exchange, which has seen its market share of trading in London equities stabilising and a steady improvement in the IPO market. Total income is up 6 per cent on the third quarter of last year, and 9 per cent on a constant currency basis.
Britain's economy may look shaky, but the LSE is now an international business. FTSE 100 companies also earn a good chunk of their money abroad. So an improving global economy benefits the exchange and its clients even if the situation at home is less cheerful.
What's more, this is a business run by a an energetic and shrewd chief executive. Xavier Rolet's various initiatives, designed to boost the LSE's ability to compete in a tough environment, look to be bearing some fruit.
Eventually, exchange consolidation will come back on the agenda, and it is still not entirely clear whether the LSE will be predator or prey, but at 12 times forecast full-year earnings it sits at a discount to the European "exchange infrastructure" sector even if the shares have had a good run recently. We'd hold on to them.
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